Shell abandons Arctic drilling plans as 'too expensive and risky'

Shell has announced it has abandoned its oil exploration activities in the Arctic as it didn’t find enough crude to justify the effort.

Stating the project would be ‘too expensive and risky’, the firm decided to withdraw from the area some 240km off the coast of Alaska, where it had been searching for oil in depths of about 250m.

Earlier this year, Shell drilled the 2000m deep Burger J well in the Chukchi Sea in a basin which, according to the firm, showed signs of a petroleum rich area.

However, further exploration concluded the amount of oil wasn’t sufficient to warrant further exploration.

"The Shell Alaska team has operated safely and exceptionally well in every aspect of this year's exploration program," said Marvin Odum, Director, Shell Upstream Americas. "Shell continues to see important exploration potential in the basin and the area is likely to ultimately be of strategic importance to Alaska and the US. However, this is a clearly disappointing exploration outcome for this part of the basin.”

Shell has spent about $7bn on exploration in the waters off Alaska so far and said it could take a hit of up to $4.1bn for pulling out of the Chukchi Sea for the "foreseeable future".

The unsuccessful campaign is Shell's second major setback in the Arctic after it interrupted exploration for three years in 2012 when an enormous drilling rig broke free and grounded.

Environmental campaigners and shareholders have also pressured Shell to cease Arctic drilling due to oil spill concerns.

Shell's abandonment of Arctic drilling came just six weeks after the US government granted the company final clearance for its campaign.

"The entire episode has been a very costly error for the company both financially and reputationally," said analysts at Deutsche Bank, who estimate the Shell's Arctic exploration project could cost the company about $9bn.

The decision is also the latest in a series of setbacks for projects in the Arctic trying to find oil and gas deposits estimated at 20 per cent of the world's undiscovered resources.

Earlier this year, Norway's Statoil postponed its Arctic Johan Castberg project again and in 2012 Russia's Gazprom, together with Total and Statoil, scrapped the Shtokman gas project in the Arctic Barents Sea.